Where did our clients invest in January 2015?
According to data disclosed by the Investment Association, funds in the UK Equity Income sector have been the most popular choice with retail investors for several months now. The popularity of UK Equity Income funds is a pattern also reflected in the choices made by clients using our Online Investment Service during January with the CF Woodford Equity Income fund the bestseller. The top-rated Threadneedle UK Equity Income fund also proved a popular choice.
We also saw strong interest for funds investing in the US stock market, which has enjoyed a meteoric rise in recent years, leaving other major developed stock markets trailing behind and the S&P 500 Index reaching a record high.
Here we provide some colour on the ten most popular funds our Online Investment Service clients chose:
- CF Woodford Equity Income
- Neil Woodford is perhaps the closest thing the UK fund management industry has to a household name, with a successful 26 year career track record managing UK Equity Income funds and a CBE awarded for his services to the economy.
Since leaving Invesco Perpetual and setting up his own business – Woodford Investment Management – last year, his new fund has ballooned to £4.3 billion of assets in little over six months, and at the same time has significantly outperformed the FTSE All Share Index.
Woodford tends to be a long-term holder, with a style that is risk averse and with an emphasis on stocks that are available at attractive valuations. He is prepared to zero weight major stock market sectors if he feels the outlook is unattractive, so what he doesn’t hold is in some ways as important as what he chooses to invest in. His investment style also leads him towards more businesses that are less sensitive to the economic cycle such as healthcare and tobacco. With top ten holdings including Imperial Tobacco, British American Tobacco and Reynolds American, the fund is unlikely to appeal to investors with ethical objections to tobacco.
- AXA Framlington Biotech
- Shares in biotechnology companies, the majority of which are listed in the US, have been one of the best performing parts of global stock markets in recent years, delivering stratospheric returns. However, potential investors need to be aware this is a very high risk and volatile area. Interest in biotech companies has been fuelled by the apparent willingness of the US Food & Drugs Administration authority to approve more therapies, leading to a surge of new products and biotech companies listing.
This specialist fund is managed by Linden Thompson who also previously worked for London-based healthcare hedge fund Clear River Capital and was a healthcare analyst at Goldman Sachs. The fund invests primarily in companies in the biotechnology, genomic and medical research industries.
While it invests worldwide in companies of all sizes, the bulk of the fund’s portfolio consists of US stocks, which reflects the location of much of the biotech industry. Thompson targets companies with characteristics including quality management, robust clinical trial processes and market leading technologies, but also incorporates investment themes such as the effects of the bird flu outbreak.
- Vanguard FTSE Developed World ex UK Equity Index
- This tracker fund aims to match the performance of the FTSE Developed ex UK index. This consists of large and medium sized companies from advanced economies, and typically has a high weighting to North America, with the remaining balance split between Asia/Australasia and Europe.
- HSBC American Index
- Few active fund managers have managed to beat the US stock market in recent years, which has surged to new highs with the tailwind of the Federal Reserve’s now ended stimulus programme behind it and a recovery in the US economy. With even legendary investor Warren Buffet recently admitting that a low-cost S&P 500 Index tracker was a sensible way to invest in the US, it is unsurprising that this tracker fund has proven a popular choice with our clients.
- Aberdeen North American Equity
- Aberdeen’s US Equities team invest in large and mid-sized North American companies with a minimum market cap of US $1billion. The team looks for companies beginning with a filter on the quality of businesses such as profitable growth prospects. Quality of management is also important and the team will not invest until they have met the management team. Once companies have passed this filter, they are then filtered based on price.
- GLG American Growth
- While this fund is primarily invested in the US, it has the flexibility to also invest in Canada and Latin America. The fund aims to provide outperformance in rising and falling markets by optimising the exposure to a mix of five different strategies.
- Threadneedle European Select
- The Eurozone has been grappling with a combination of low growth and too little inflation but with the impending launch of a massive stimulus programme, and low energy prices expected to boost consumer spending, European equities are back on the radar of investors.
This fund, managed by Dave Dudding, has long held a five-star rating from our research team. Dudding is a stock picker who has created a relatively concentrated portfolio of mostly global brands that are domiciled in Continental Europe. Dudding focuses on high quality growth stocks where companies have a competitive advantage or a natural barrier to entry. Once identified, Dudding typically holds companies for a long period until he believes the investment case for them has materially changed. We believe this is a core ‘get rich slowly’ European equity fund.
- Fundsmith Equity Fund
- Terry Smith is a City Big Beast who made his reputation as an analyst, went on to become Chief Executive of broker Collins Stewart and doesn’t mince his words when it comes to speaking out on issues. The fund, launched by his fund management venture, targets long term growth by investing in equities worldwide. Smith has a concentrated portfolio of large stocks, which he holds for the long term. He invests in ‘quality’ companies which are typically found in Europe or North America and are often in the consumer staples sector.
- Threadneedle UK Equity Income
- This five-star rated fund is managed jointly by Threadneedle’s Head of Equities Leigh Harrison and fund manager Richard Colwell and it invests predominantly in large and mid-cap UK equities, typically holding between 45 and 60 companies. The pragmatic and adaptable approach avoids the strong style bias sometimes seen in the UK Equity Income sector and the focus is total return, not just income.
- First State Asia Pacific Leaders
- Led by veteran fund manager Angus Tulloch, the First State team has a long track record of investing in Asian markets. The team focusses on high quality companies and has a relatively conservative investment style which has historically served them well in a region that is known for its volatility.
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.
Funds may carry different levels of risk depending on the industry sector(s) in which they invest. You should ensure that you understand the nature of any fund before you invest in it. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing. Due to their nature, specialist funds can be subject to specific sector risks. Investors should ensure they read all relevant information in order to understand the nature of such investments and the specific risks involved.
Underlying investments in emerging markets are generally less well regulated than the UK. There is an increased chance of political and economic instability with less reliable custody, dealing and settlement arrangements. The market(s) can be less liquid. If a fund investing in markets is affected by currency exchange rates, the investment could both increase or decrease. These investments therefore carry more risk.
ETFs can be high risk and complex and may not be suitable for retail investors, so you should make sure you understand all the risks involved before investing. For generic ETF communications also include: You should also be aware of investments called ETNs (Exchange Traded Notes) and ETCs (Exchange Traded Commodities) which are often marketed in the same category as ETFs. These carry similar, and sometimes higher, risks than ETFs.